Scalability

The potential market for CO2-derived products and services will depend on both supply and demand-side factors. Demand can vary considerably by region and by specific type of product and service. While some CO2-derived products and services could be traded on large commodity markets (for example, fuels), others would target specific niche markets with limited demand (for example, polymers). On top of existing demand for conventional products, CO2-derived products and services could also unlock new demand, due to lower production costs or superior attributes.

On the supply side, constraints in the availability of key inputs, particularly low-cost renewable energy, CO2, hydrogen, or other raw materials could determine the speed and scale with which CO2-derived products can enter the market.5 Implicit in this is the availability of infrastructure, including transporting hydrogen and CO2 to processing facilities (see Box 3). Similarly to the demand side, limitations on supply can vary significantly by region as well as by type of product or service.

Box 3. Infrastructure needed to deliver hydrogen and CO2

The extensive use of hydrogen and CO2 for conversion into fuels and chemicals would require the deployment of a large-scale transport infrastructure, including pipelines and, in some places, terminals, ships and trucks. A common transport network would benefit individual CO2 use companies, especially small ones, as it delivers economies of scale and provides access to hydrogen and CO2 sources that are not necessarily located close to demand. Further benefits could be achieved by combining CO2 transport for use in products (and services) and geological storage. Similarly, by pooling hydrogen demand coming from several sectors (e.g. industry, transport and heating) and transporting this in one common infrastructure can deliver considerable economies of scale.

Despite the economic benefits, securing investment for infrastructure networks is challenging. Investors must be confident of a large long-term market for hydrogen and CO2 to underpin their investment case. However, such a market is unlikely to emerge without the transport options already available. Given the potential impasse, public support will probably be necessary. In the United States, an extensive network of over 6 000 km of pipelines transports around 60 MtCO2 for EOR. The US EOR industry has grown at a rate unmatched globally, in large part due to the development of its transport network. While EOR is a profitable undertaking, policies have encouraged its development.

Competitiveness

The market for CO2-derived products and services will expand if they are competitive. This is determined by their relative cost compared to their conventionally-produced counterparts and other low-carbon alternatives. The main factors affecting the cost of CO2-derived products and services are the costs of technology, energy, CO2 and other raw materials. The contribution of each factor in the total costs varies according to product and service. While capital costs for

5 Potential constraints on the availability of key inputs are discussed below.

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Figure 17.

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1

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Comparison of hydrogen production costs from electricity and natural gas with CCS in the near term

Electrolysis, 30% capacity factor

Electrolysis, 50% capacity factor

Electrolysis, 70% capacity factor

Natural gas with CCS, 11 USD/MBtu

Natural gas with CCS, 3 USD/MBtu

Electricity price (USD/MWh)

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Regions that are less endowed with renewable resources, such as Japan, can import low-carbon hydrogen from regions with good solar or wind resources, such as Australia. IEA analysis shows that hydrogen imports can be substantially cheaper than domestic production for a number of supply routes, including from Australia to Japan, especially if hydrogen is incorporated into ammonia during transport (IEA, 2019a).

The price and availability of CO2

CO2 needs to be captured, purified and transported. The costs of CO2 capture and purification vary greatly by point source, ranging from USD 15 to 60/tCO2 for concentrated CO2 streams, USD 40 to 80/tCO2 for coal and gas-fired power plants, to over USD 100/tCO2 for small, dilute point sources (e.g. industrial furnaces) (Table 1). Capturing CO2 directly from the air is the most expensive method, with costs reported in academic literature ranging from roughly USD 94 to 232/tCO2, as it implies a much greater energy input than CO2 capture from concentrated point sources (Ishimoto et al., 2017; Keith et al., 2018).6 Over time, capture costs are expected to decrease for most of these applications as a result of technological learning that would arise from wide deployment. Most of the indicated cost figures apply to large-scale CCS applications. The volumes of CO2 anticipated for CO2 use applications are much smaller and could increase capture cost.

Notes: Some cost estimates refer to chemical sector and fuel transformation processes that generate relatively pure CO2 streams, for which emissions capture costs are lower; in these cases, capture costs are mostly related to further purification and compression of CO2 required for transport. Depending on the product, dilute energy-related emissions, which can have substantially higher capture costs, can still make up an important share of overall direct emissions. Costs estimates are based on capture in the United States. Hydrogen refers to production via steam reforming; the broad cost range reflects varying levels of CO2 concentration: the lower end of the CO2 concentration range applies to CO2 capture from the pressure swing adsorption off-gas, while the higher end applies to hydrogen manufacturing processes in which CO2 is inherently separated as part of the production process. Iron and steel and cement capture costs are based on ‘Nth of a kind’ plants, reflecting projected cost reductions as technology is applied more broadly. Iron and steel and cement costs are based on capture using existing production routes – however, innovative industry sector technologies under development have the potential to allow for reduced costs in the long term. The low end of the cost range for cement production applies to CO2 capture from precalciner emissions, while the high end refers to capture of all plant CO2 emissions. For CO2 capture from iron and steel manufacturing, the low end of the cost range corresponds to CO2 capture from the blast furnace, while the high end corresponds to capture from other small point sources. Costs associated with CCUS in industry are not yet fully understood and can vary by region; ongoing analysis of practical application is needed as development continues. SMR = steam methane reforming.

Source: Analysis based on own estimates and GCCSI (2017), Global Costs of Carbon Capture and Storage, 2017 Update; IEAGHG (2014), CO2 Capture at Coal-Based Power and Hydrogen Plants; NETL (2014), Cost of Capturing CO2 from Industrial Sources.

6 Capture costs reported by direct air capture start-up companies and technology providers are in the range of USD 10/tCO2 to USD 200 /tCO2, which is significantly lower than values in the academic literature (Ishimoto et al., 2017). However, as the assumptions underpinning these cost estimates are often not available, these claims cannot be substantiated. One possible (partial) explanation for the discrepancy in costs is that companies and academics are examining different system designs.

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